Sunday, May 24, 2009
The rush to bankruptcy
The Obama administration appears ready to force General Motors to file for bankruptcy before the week is out.
It is time for members of Congress who care about the U.S. auto industry to put the brakes on this rush to Chapter 11.
We had hoped that Chrysler’s bankruptcy experience could have provided some guidance regarding General Motors, but not enough time has elapsed to provide a clear indication of what a GM reorganization would look like.
What is known is that being in bankruptcy gave Chrysler the latitude to jettison hundreds of dealers with seeming impunity. Frederick Chrysler Jeep Dodge in Boardman was dropped even though the dealership met or exceeded the company’s stated criteria. Chrysler also told dealers it would not buy back inventory, yet the dealerships can’t function as new car retailers after June 9. Bankruptcy has given Chrysler the ability to shift hundreds of millions of dollars in liability to the individuals and families that have been selling Chrysler products for generations.
Communities large and small are going to be hurt by the Chrysler closings and by the first round of closings announced by pre-bankruptcy GM. That effect would be magnified multiple times if GM pursued a second round of dealership closings under bankruptcy.
Real politics
While both Chrysler and GM may have discussed trimming dealerships even before President Barack Obama was inaugurated, once the administration pushes automakers toward bankruptcy, the buck stops at Obama’s desk.
The administration is also facing a political backlash if, after it pours billions into saving Detroit automakers, the companies accelerate the closing of U.S. plants and the importation of vehicles. The Kansas City Star reports that a GM document circulating in Washington calls for nearly doubling the vehicles it imports into the United States, from 371,547 to 736,547 over the next five years. Those imports would come from China, Mexico, Korea and Japan.
While we have supported administration’s efforts to save the domestic auto industry, we have had our reservations. Early on we questioned the make up of Obama’s auto task force, which has lots of bean counters but not one member from the auto industry. It also has as many members who don’t own a car as own American-made cars. Most of those who drive, drive imports.
We had hoped those demographics wouldn’t affect administration policy. Now we can only hope that a different demographic can come into play: Obama could not have won without states that are tied to the Detroit automakers. Members of Congress who come from those states should remind him of that reality.